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Americans Renouncing Citizenship Set to Break Record Again, Trump, GOP Tax Reform Bill Offers Little Hope for Relief

The number of U.S. citizens applying to renounce their citizenship surged in the third quarter, as 2017 is expected to be yet another record year for the number of Americans opting to surrender their U.S. passports.

The legions of those giving up their citizenship were already expected to continue growing exponentially, before the Republican Party-backed tax bill revealed last week did not offer any measures of much-hoped-for tax relief for overseas residents.

Ways and Means Committee Republicans have said they were discussing measures to end taxes on foreign earned income. Representative George Holding (R., N.C.) previously publicly advocated ending taxes on foreign-earned income and reportedly said he was optimistic that the proposal would be part of the bill submitted Thursday. Mr. Holding noted how multinational companies are often reluctant to hire U.S. citizens because of the extra costs to do so. Republicans also discussed repealing the Foreign Account Tax Compliance Act (FACTA) last year as part of their part platform. However, both of these provisions are missing from the new tax bill submitted late last week.

After the Foreign Account Tax Compliance Act (FACTA) was enacted in 2010, U.S. citizens began to abandon their citizenship in record numbers. Under FATCA, expat tax filers whose assets reach a certain threshold are now required to file Form 8938 in their annual tax filings in addition to the Report of Foreign Bank and Financial Accounts (FinCEN Report 114 or “FBAR”). Foreign banks also face penalties by not disclosing details of accounts belonging to U.S. citizens to the Internal Revenue Service (IRS). Prior to FACTA’s enactment, it was previously more difficult for U.S. tax authorities to access foreign bank account records in the event of an audit.

According to a report published in the Federal Register last week by the IRS, 4,400 U.S. citizens filed to cancel their citizenship during the first three quarters of 2017. The IRS said the number totaled 1,370 in the third quarter ending Sept. 30. The total annual number is expected to surpass last year’s record total of 5,411 at the current pace.

Curiously, the IRS also opted to publish the full names of those who opted to renounce their U.S. citizenship in the third quarter in the Federal Register.

Those who renounce their citizenship must pay a $2,350 fee. They also must declare that they were compliant with U.S. tax code for the past five years. Those whose net worth totals more than $2 million or have paid an average of $162,000 net income tax during the past five years will be subject to the expatriation tax rules in order to give up their citizenship.

Renouncing your U.S. citizenship thus does come at a price, but a rapidly growing number of Americans apparently think it is well worth the cost.

FBAR FILING DEADLINE
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FBAR extended deadline just days away

The IRS Has Extended Your Filing Deadline for Overseas Accounts — But You Must Act Now

The good news is that the IRS has granted U.S. citizens and residents an automatic extension to file Reports of Foreign Bank and Financial Accounts (FBARs).

But just because the IRS has already granted you an FBAR extension if you haven’t already filed one, you are still on the hook. You now only have a few days to meet the deadline, and by not complying, the IRS has become less tolerant for late filers (more on that below).

The IRS instituted the automatic extension after moving the original filing deadline ahead this year by three months to April 15. It did this largely to bring the filing deadline in sync with that of the annual tax filings season for U.S. federal income taxes.

Specific to an extension for FBARs, the IRS says it has sought to implement the filing statute with a “minimal burden to the public” and has granted “filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year.  Accordingly, specific requests for this extension are not required.”

Why Me?

The IRS says all “U.S. persons” with individual or combined financial holdings outside of the U.S. and its territories totalling $10,000 or more at any time during the year must file an FBAR.

A “U.S. person” includes:

-U.S. citizens and residents.

-corporations, partnerships, or limited liability companies, founded or operated in the U.S.;

-trusts or estates formed under the laws of the United States.

Key Takeaway

In other words, the October 15 filing day for FBARs has become the real deadline. But what also matters is the IRS has signaled it will be less lenient for late filers than it was in the past. Before, you could file an FBAR late after the original June 15 deadline with little to no risk of penalties if you could come up with a reasonable explanation for filing late. A “reasonable” excuse, according to the IRS, was that “information from foreign financial institution was not available by the due date.”

But the IRS’ previously leniency for filing FBARs has been replaced with a new due date with stricter implications. The October 15 deadline is indeed an extension of the official April 15 due date, but the IRS will likely be unforgiving if you file after October 15. A mere “non-willful” late filing could trigger a penalty of $10,000, for example.

The time to file is thus now if you haven’t done so already.

Questions? Contact our team of tax professionals for a Free Consultation.

Tax filing due date 2 weeks away
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Expat tax filing deadline less than 2 weeks away!

If you are an expat tax filer and not already working with one of our CPA’s and/or need more time to complete your 2016 return, we can assist to file an extension until October 16th – but the request must be submitted to the IRS by June 15th!

If you do owe taxes for the 2016 tax year, it’s important to note that the extension does not apply to tax obligations – interest started accruing on any tax due after the regular April deadline.

To get started on filing an extension, simply send us a note and someone from our team will be in touch ASAP to advise regarding next steps.

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IRS to Expats: Pay Now or Risk Losing Your Passport

The IRS set to begin revoking passports for unpaid tax bills.

The IRS had indicated it is ready to make good on its threat last year to begin revoking or refusing to renew U.S. passports as a means to collect unpaid taxes.

While the IRS has not started referring unpaid tax debt totaling $50,000 or more to the U.S. State Department for collection, it is scheduled to begin doing so in the coming weeks. Under USC-7345 (“Revocation or denial of passport in case of certain tax delinquencies”), the IRS may notify the U.S. State Department of “individuals with seriously delinquent tax debt.” It defines “seriously delinquent” as “an individual’s unpaid, legally enforceable federal tax debt totaling more than $50,000.” The State Department can then refuse to renew or revoke your passport except for return travel to the U.S.

According to the IRS’s website, the $50,000 threshold mentioned above includes interest and penalties. However, it specifically excludes non-delinquent debt, such as tax payments paid on time under an installment agreement or as part of an offer the IRS has made.

Having your passport revoked is obviously something you don’t want as an expat American. These inconveniences include being unable to open a bank account, check into a hotel, sign a rental agreement, or do something as simple as signing up for a mobile phone plan.

And, as we mentioned in our previous article, you could be on the hook for a delinquent tax bill and not even know it. This is because not having received a letter from the IRS does not mean you don’t owe the tax. For example, it is not uncommon for an expat returning home or filing a return to find out they had been already been “notified” of an audit by a letter they never received or that mysteriously got lost in the mail.

Bottom line: you should file your taxes now if you haven’t already before it’s too late. The writing is on the wall with the recently introduced FATCA, tax treaties (often including tax information exchange agreements (TIEAs)), and implementation of the OECD’s The Automatic Exchange of Information (AEOI).

But the good news is that the IRS’s Streamlined Foreign Offshore Procedure is a great way to start. Your tax advisor can let you know if you qualify or not for the program with just a simple assessment of your case.

One thing to keep in mind is that you cannot currently be under an audit to become eligible for the Streamlined Foreign Offshore Procedure. This means you need to file before you get that dreaded letter in the mail from you friends at the IRS.

IRS’ more aggressive initiatives to collect unpaid tax bills should have many law-abiding U.S. taxpayers concerned. But contacting your tax advisor today can go a long way in helping you to sleep better tonight.

-Eric la Cara

Tax changes for expats
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Taxes for US expats – President Trump’s Tax Proposals

American expat tax filers are understandably concerned about their annual U.S. tax filing obligations. But now, they have something else to think about: what changes may lie ahead with President Trump’s clear plans to implement across-the-board tax cuts for both individuals and corporations? And how, if at all, might expats benefit? While many of the changes are still in the planning phase, here are a few possibilities, based on recent statements by President Trump and his team:

1. Simplification. By “simplify” does President Trump mean to really “reduce” taxes? One important potential change is President Trump’s plan to reduce the total number of tax brackets for individuals from seven to three. The new brackets would then be 12, 25, and 33 percent. Also, the net investment income tax (NIIT), which was included as part of the Patient and Affordable Care Act, will likely be eliminated. This would thus allow these new tax brackets – along with the relatively lower tax rates for dividends and capital gains – to represent actual tax rates and not ones with tack-ones such as NIIT.

2. Elimination of Estate or “Inheritance” Tax. Currently, estate tax is imposed on estates with total value exceeding $5.45 million (or $10.9 for married couples), and there are no separate taxes owed for unrealized capital gains within the portfolio at the time of death. President Trump’s proposal would effectively eliminate estate taxes, but with one key twist: tax could be imposed on unrealized gains for those estates exceeding a $10 million threshold.

3. What this means for expats. Generally speaking, the tax changes under President Trump’s proposal could decrease taxes for those in higher tax brackets but potentially increase taxes for those in lower-income ranges. As most expats qualify for the Foreign Income Exclusion (FIE) in the amount of $101,300 for the 2016 tax year filed in 2017, the ultimate effect could mean a lower tax bill for those with income levels exceeding the FIE for 2017 and beyond. This would especially be the case for those with tax obligations on unearned, or passive income, such as interest, dividends, and capital gains.

-by Eric la Cara

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Get an early start on your 2016 taxes!

Attention all American expats and greencard holders: The IRS begins accepting returns on January 23, 2017. While the actual return due date is April 18* (the IRS provides a automatic 2-month filing extension for US expats, but this extension does not apply to tax payment obligations – interest begins accruing on any tax due after the regular April deadline), it is always best to get started as early in the season as possible in case there are any unanticipated complexities in your tax situation, and of course to beat the busy season rush.

*The filing deadline for 2016 tax returns is April 18, 2017, as the usual April 15 date falls on a Saturday, and the 17th (Mon) is a legal holiday in the District of Columbia.

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What are Totalization Agreements, and do they cover income as well as social security/pension payments?

Totalization Agreements are formal agreements between the US and foreign countries to avoid double taxation of income through social security taxes. The Agreements only apply to the imposition of social security tax. If you are self-employed, your self-employment income is eligible for foreign earned income exclusions if you can satisfy the required conditions, but you are still subject to US self-employment tax (i.e. social security tax). However, if you are residing in a country that has a totalization agreement with the US and are subject to social security tax in that country on your self-employment income, you can be exempt from US self-employment tax. List of countries with signed Agreements with the United States.

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Selling in house in China – Do I have to pay tax on capital gains?

(from our FAQ for expat tax filers)
Question: We recently sold our home in China at a considerable profit. Will we have capital gains tax obligations on the U.S. side?
Answer: In addition to potential capital gain exclusions on sale of primary residences, the U.S.-PRC Tax Treaty stipulates that capital gains derived from the sale of real estate (i.e. real property) may only be subject to capital gains tax in the contracting state (in this case, China). However, tax treaty wording can be quite complicated and often requires a tax professional’s input to determine whether or not it is applicable under each set of individual circumstances.

Ask an Expert: I have not filed federal tax returns for several years. Will I have to pay any penalties when filing?

(from our FAQ for expat tax filers)
Question: I have not filed federal tax returns for several years. Will I have to pay any penalties when filing for multiple years?
Answer: Not necessarily. If you have not filed and do not have any taxable income (e.g. under the threshold of the Foreign Income Exclusion for all tax years), then neither penalties nor interest will be applied. If you do owe tax, then you may be eligible for the Streamlined Foreign Offshore Procedures, under which you would be able to avoid non filing and/or late filing penalties and only have to file for three years (but you would still owe interest on any unpaid tax). However, it is always best to file your returns on time every year. Many Americans are not aware that they are still required to file even though they may be well under the threshold allowed under the Foreign Income Exclusion – in fact, you have to file in order to be able to apply the exclusion.

Is the U.S. getting ready to raise taxes for the rich?

As an increasingly large portion of Americans feel that “the rich” need to pay more tax, and the likelihood of an increase may be looming on the horizon. And how will things change with the upcoming election? With Hillary? Trump?

Read the full article at The Atlantic’s website.

Source: The Atlantic Website (www.theatlantic.com)